In a seven-page ruling, the Advertising Standards Authority found the retailer had misled the public by making a series of grisly claims about fox hunting in an in-store leaflet titled "Hunting ban, what hunting ban?".
Among the statements the advertising watchdog ruled to be unsubstantiated were that hunts regularly flouted the ban, fed old hounds to their fellow dogs and that police failed to prosecute the law-breaking.
The pro-hunting campaign group Countryside Alliance said the ruling vindicated its criticism of the flyer and accused Lush of running a campaign based on "misleading and inaccurate claims". Despite the ruling, the retailer was defiant. Andrew Butler, Lush's campaigns manager, said it was sure of its facts on fox-hunting and would continue running vivid and unsettling material for causes it championed.
During the past three years the global chain – which sells hand-made soaps, shampoos and foaming bath balls – has campaigned against the imprisonment of people at Guantanamo Bay, deforestation caused by palm oil and the catching of 100 million sharks a year to make shark-fin soup.
To highlight the catching of sharks, Alison Newstead, a former employee, hung herself from fish hooks in the front of Lush's branch in Regent Street, central London, with blood dripping down her back.
So far the controversies have not dented sales at the group, despite 13,000 people joining an internet campaign saying they would boycott it because of the hunting campaign.
A market research analyst said the high-profile activities would probably help the shop increase the value of its brand. "It's a sensible strategy to be ethically strong and it resonates with their brand name of fresh, handmade products," said Malcolm Pinkerton, senior analyst at Verdict Research.
The campaigns bear the personal stamp of the entrepreneur and environmentalist Mark Constantine, who founded Lush with a single shop in Poole in 1995 after being a major supplier to the Body Shop, where he worked with its founder Anita Roddick on its protest against animal testing.
Taking a break from birdwatching near the company's headquarters in Poole, Dorset, yesterday, Mr Constantine said that he recognised when Mrs Roddick died from a brain haemorrhage three years ago that there was room for someone to take on some of her campaigning zeal.
Mr Constantine, who owns 60 per cent of the privately-held company with his wife Mo, said that although Lush had been "heavily influenced" by the Body Shop, which is now owned by the French cosmetics giant L'Oreal, he wanted his business to be more passionate.
"I found sometimes in the Body Shop that people thought the ethical bits weren't to do with them," he said.
"I hope if you wonder around Lush [the staff would be saying]: 'We have done this or we have done that' rather than 'some other people have done this'."
While still smaller than Body Shop, which has 2,550 stores in 63 countries, Lush has expanded quickly, with 672 shops in 42 countries. Turnover jumped 40 per cent to £215m in the year to June 2009, with a pre-tax profit of £13.9m.
The business runs three major campaigns a year, with graphic displays inside its shops and the sale of soaps whose proceeds are distributed to dozens of campaign groups.
Asked whether the campaigning was intended to position the firm as an edgy brand rather than to make the world a better place, Mr Constantine replied: "It can be that and still be good."
For its foxhunting campaign, Lush produced a leaflet with the help of the Hunt Saboteurs Association, to which it donated £50,000 from the sale of a bubblebath. The leaflet – which suggested hunters were regularly breaking the law with impunity because the police failed to act – prompted a front-piece article in the magazine Horse and Hound and 129 complaints to the ASA.
The watchdog ruled against Lush on three issues but backed it on a further six issues, including that the public was overwhelmingly in favour of the ban and that hunting was an insignificant form of pest control.
The Countryside Alliance's head of media, Tim Bonner, said Lush had blundered. "On some matters it has only itself to blame for working with an extreme organisation like the Hunt Saboteurs Association that has a long history of inaccuracy and exaggeration," he said, adding that only three hunts had been found guilty of breaking the ban since it came into force five years ago.
The ASA banned the leaflet.
"It won't make any difference," said Mr Constantine. "We won't print any more of that leaflet, but we didn't want to."
Eye-catching campaigns
Guantanamo Bay
Lush campaigned against the US's imprisonment of terrorism suspects at Guantanamo Bay in Cuba by launching a a Guantanamo Garden bathball which fizzed away to reveal the images of two detainees, Al Jazeera camera man Sami Al Haj and British resident Binyam Mohamed, and the website address of human rights charity Reprieve. The campaign raised £40,000 for Reprieve.
Shark Fins
To highlight how many sharks are killed annually for their fins and then pushed back into the water to drown (100 million), the retailer sold a Shark Fin Soap, complete with a cardboard fin two years ago. It raised £40,000 for the campaigning Sea Shepherd Conservation Society, and awareness of the practice in Asia, where TV channels showed the gruesome fish hook stunt featuring Alison Newstead.
Fox hunting
As well as handing out the leaflets which prompted the ASA ruling, Lush raised £50,000 for the Hunt Saboteurs Association through the sale of the Fabulous Mrs Fox bubblebath. The money went towards upgrading Land Rovers and paying for fuel.
Other campaigns
Lush has also campaigned against animal testing, refusing to buy any products from firms that test anything on animals, and palm oil, the vegetable oil causing deforestation in Asia.
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